UK accounting and bookkeeping firms are closing the gap on foreign markets in shifting clients to the cloud ahead of the government’s Making Tax Digital (MTD) initiative, according to a new Benchmarking Report by Xero.

The UK currently lags behind the US and Australia on the digital tax front, with 31% of firms having 80% online clients, compared with 49% in the US and 54% in Australia. However, the report said that this number was expected to rise within two years from 31% to 56%. As the UK currently has the highest number of desktop clients at 28% (compared with 9% in Australia and 5% in the US), UK accountants have their work cut out in migrating clients to the cloud. Currently only 18% of UK firms surveyed have virtually all clients using online accounting (98%-100% of clients). This number is anticipated to rise with the rollout of the MTD initiative.

When surveyed on the aspects of their competitors’ businesses that were of most interest to them, firms of all sizes responded with MTD. Correspondingly, knowing which business apps and digital tools were best to use were the next ranked topics of interest.

Gary Turner, co-founder and managing director of Xero commented on the shift to digital accounting: “These findings give a fascinating insight into just how far the accounting industry has moved into the digital era. They clearly indicate that digital practices enjoy increased growth and revenue, and it is particularly encouraging to see that despite the UK still sitting behind other countries in moving clients online, UK firms have aggressive targets to increase, particularly in preparation for the UK’s new digital tax laws next year.”

Ingredients for success

The report outlined four ingredients for positive outcomes and growth for accounting firms. The first, expectedly, was a proactive migration of desktop clients to cloud accounting. Second was a specific benchmark stating that firms that build up at least 125 online accounting clients were likely to grow their client base exponentially through referrals.

For the third ingredient of success, the report suggested that moving from hourly to monthly billing had been positive for those companies who have made the switch. In these cases, concerns about the billing change reduced significantly as the online client portfolio grew, with the report suggesting that monthly billing resulted in simpler administration and greater revenue.

Finally, the report concluded that a firm would benefit from having a working relationship with a banker in order to enrich advisory services.

The report was based on a survey of 400 accounting and bookkeeping firms using Xero, and was conducted in December 2016.